Should You Investigate Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BVMF:SBSP3) At R$35.69?

While Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BVMF:SBSP3) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the BOVESPA, rising to highs of R$40.18 and falling to the lows of R$33.68. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Companhia de Saneamento Básico do Estado de São Paulo - SABESP's current trading price of R$35.69 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Companhia de Saneamento Básico do Estado de São Paulo - SABESP’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Companhia de Saneamento Básico do Estado de São Paulo - SABESP

What's the opportunity in Companhia de Saneamento Básico do Estado de São Paulo - SABESP?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Companhia de Saneamento Básico do Estado de São Paulo - SABESP’s ratio of 9.49x is trading slightly below its industry peers’ ratio of 11.14x, which means if you buy Companhia de Saneamento Básico do Estado de São Paulo - SABESP today, you’d be paying a reasonable price for it. And if you believe Companhia de Saneamento Básico do Estado de São Paulo - SABESP should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. In addition to this, it seems like Companhia de Saneamento Básico do Estado de São Paulo - SABESP’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Companhia de Saneamento Básico do Estado de São Paulo - SABESP look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 38% over the next couple of years, the future seems bright for Companhia de Saneamento Básico do Estado de São Paulo - SABESP. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? SBSP3’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at SBSP3? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on SBSP3, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for SBSP3, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Companhia de Saneamento Básico do Estado de São Paulo - SABESP as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 1 warning sign for Companhia de Saneamento Básico do Estado de São Paulo - SABESP and we think they deserve your attention.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.